A leading London-based professor says that it may not be the case that the U.K. and the rest of the European Union may want to come out of the Brexit negotiations on a positive note.
“Everybody wants win-win, everybody wants for (us to) all be better off. It’s not going to be that way,” Richard Portes, professor of economics at London Business School said in TV interview.
“We’re all going to be – both on the U.K. side and the EU-27 side – we’re all going to be worse off. There’s no way that you can avoid the shocks, the negative shocks that will come from breaking the past trade, investment and so forth relationships that we’ve had.”
With Eurogroup Chief Jeroen Dijsselbloem saying in Berlin Thursday, that both the U.K. and the rest of the EU should try to “minimize the damage” of Brexit, with him also highlighting the risks facing financial stability, leading figures from both the U.K. and EU have stated that they want to keep close ties following the triggering of formal exit talks, even though it’s been just over week since the U.K. triggered Article 50 and in the run-up to the formal exit talks.
Saying that while the euro area’s economy has been picking up, troubles are expected ahead for the British economy, Portes discussed the economic outlook for Europe and the U.K. on the sidelines of the Ambrosetti Finance Workshop in Italy”The outlook, interestingly, for the euro area economy has been picking up very substantially over the past half a year and that’s partly to do with the European Central Bank’s aggressive easing policies.”
However, Portes believed the Bank of England would be facing its own set of challenges as the end of 2017 approaches when it comes to the U.K.
“I think the Bank is going to be facing a hard choice towards the end of this year, because I think that consumer expenditure will be slowing down, investment will not be picking up and inflation will be picking up.”
“So the bank will have the classic conflict between ‘do we raise rates to combat inflation?’ with the possibility that in fact that the economy is slowing down significantly.”
Analysts expect the tide to turn in the future even as U.K. data has yet to show drastic negative impacts from Brexit on the economy.
With the biggest drop in sentiment related to clothing, a “dramatic reduction in consumer discretionary income and intention to spend” was show in a recent UBS survey of 2,000 respondents. UBS expected that with real wages set to fall, discretionary spend would follow even while consumer confidence had remained steady so far.
The “economy cannot defy gravity in perpetuity,” stating that while Brexit woes have “failed to upstage the UK economy” yet, a Panmure Gordon note on Thursday echoed similar sentiment.
“I think there are very few positive signs. We’ve got a consumer sustained boom and that’s partly consumer credit,” Portes said.
“Consumer credit has been rising at over 10 percent per annum – that is not sustainable and it’s not good. It’s re-leveraging when we thought that the economy – and in particular the household sector – had to deleverage.”
“The U.K., and the euro zone, and the rest of the EU-27 will be negatively affected by the process of Brexit, there’s no avoiding that,” Portes concluded.
(Adapted from CNBC)